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VICKERS STATE AUDITOR DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 Telephone (404) 656-2006 Facsimile (404) 656-7535 July 1, 1998 Members of the Board ofMedical Assistance, and The Honorable Dr. William R. Taylor, Commissioner Department of Medical Assistance 2 Peachtree Street, N.W., 40th Floor Atlanta, Georgia 30303 Ladies and Gentlemen: This report provides the results of our audit of Windward Nursing Center, Inc., provider number 00271829A, a participant in the Nursing Facility Services Program for the six months ended Jillle 30, 1997. This report is intended to be used solely in connection with the administration of the Georgia Department ofMedical Assistance Nursing Facility Services Program and is not to be used or relied upon for any other purpose. Respectfully Submitted, CLV/dc/bw Claude L. Vickers State Auditor 1997 Audit Report: Windward Nursing Center, Inc. 1 INTRODUCTION General Information The Georgia Medical Assistance Program (Medicaid) is administered by the Georgia Department of Medical Assistance and is jointly funded by the State ofGeorgia and the federal government. Medicaid pays health care providers for furnishing health care services to individuals or families with low income and limited resources. The Department ofMedical Assistance has established specific payment guidelines and limitations for each covered medical service. Through the Nursing Facility Services Program, Medicaid pays for care in institutional settings for recipients who are unable to remain at home or in the community. Nursing homes are paid for this service using rates calculated from Nursing Home Cost Reports submitted by each provider. These cost reports include financial, patient census, and other information. Information included in the Nursing Home Cost Report is subject to audit by the Department of Medical Assistance or its agents. In an agreement with the Department of Medical Assistance, the Department of Audits and Accounts has accepted the responsibility of auditing Medicaid providers. Provider Information Windward Nursing Center, Inc., a 100-bed long-term health care facility located in Flowery Branch, Georgia, is a provider enrolled in the Georgia Medicaid Nursing Facility Services Program. The facility provides both skilled and intermediate care services to 2 Nursing Facility Services Program Audit Objectives resident patients. The facility was owned and operated as a component of NewCare Health Corporation, a chain organization which filed a Home Office Cost Report with DMA for the six months ended June 30, 1997. The purpose of this audit was to determine whether Windward Nursing Center, Inc., maintained adequate documentation to support the allowable costs and patient day statistics reported in its Nursing Home Cost Report for the six months ended June 30, 1997; and to determine whether Windward Nursing Center, Inc., complied with the federal and state laws, regulations, policies and procedures for the Nursing Facility Services Program in effect for that period. The specific objectives of this audit were to: determine if allowable costs reported in the Nursing Home Cost Report are reasonable and allowable, in all material respects, in accordance with federal and state laws, regulations, policies and procedures governing the Georgia Nursing Facility Services Program; compare patient day statistics included in the cost report to provider records to determine if the patient day statistics are accurately reported; and recommend appropriate action based on the results of our audit. 1997 Audit Report: Windward Nursing Center, Inc. 3 Scope and Methodology To accomplish these objectives, we perfonned a limited review of the provider's internal control structure to the extent necessary to plan our audit. We interviewed provider personnel and examined records and documentation to detennine the adequacy of amounts and disclosures included in the Nursing Home Cost Report. We also reviewed, on a test basis, evidence supporting these amounts and disclosures and assessed the accounting principles used and significant estimates made by management. We evaluated the tested transactions and accounts for compliance with cost reporting principles included in the Health Care Financing Administration Provider Reimbursement Manual (HCFA Pub. 15-1) and DMA Policies and Procedures/or Nursing Facility Services. In accordance with Section 1002 of Policies and Procedures for Nursing Facility Services, the Department of Medical Assistance has calculated the payment rate for Windward Nursing Center, Inc., using a method often called the "Dodge Index system". Under the Dodge Index system, reasonable construction and asset acquisition costs are used in calculating the payment rate rather than the actual costs incurred by the nursing home for property costs such as depreciation and amortization; capital-related interest expense; and lease expense. Because these property costs are not considered by the Department of Medical Assistance when calculating the payment rate for Windward Nursing Center, Inc., our audit did not include a review ofthese costs. However, because property taxes and insurance are used by the Department of Medical Assistance to calculate the provider's payment rate, we have reviewed those costs as part of our audit. 4 Nursing Facility Services Program The Department of Audits and Accounts is responsible for providing the Department ofMedical Assistance with infonnation regarding the accuracy of cost and patient data for Windward Nursing Center, Inc., for the six months ended June 30, 1997. If the Department of Medical Assistance implements the recommendations in this report by adjusting the allowable costs and/or patient day statistics used in calculating the provider's billing rate, the provider may appeal to the Department of Medical Assistance for reconsideration of the audit findings. For this reason, we have not included a response from the provider in our report. However, we have discussed the contents of this report with the provider and have considered its responses when preparing the report. In all other respects, this audit was conducted in accordance with generally accepted government auditing standards. 1997 Audit Report: Windward Nursing Center, Inc. 5 FINDINGS AND RECOMMENDATIONS Finding No.1 Lack ofSufficient Documentation Some of the expenses included in allowable costs were not supported by adequate documentary evidence. Federal regulations provide that cost infonnation as developed by the provider must be current, accurate, and in sufficient detail to support payments made for services rendered to beneficiaries. We recommend that the provider implement policies and procedures to ensure that all expenses shown on the cost report are supported by sufficient documentation. We recommend that the Department of Medical Assistance make the following adjustment to remove the undocumented expenses from allowable costs. (HCFA Pub. 15-1 Section 2304) COST CENTER Routine Services Special Services Dietary Operation and Maintenance ofPlant Administrative and General Property and Related Expenses $ (19,006) (2,083) (1,432) (1,454) (8,287) (3,463) Total Adjustment to Allowable Costs $.=====(3=5=7,=25~) Finding No.2 Incorrect Expense Classifications Documentation examined during the audit showed that some of the expenses were not classified in accordance with the Unifonn Chart of Accounts prescribed by the Department of Medical Assistance for providers participating in the Medicaid Nursing Facilities Services Program. We recommend that the provider implement policies and procedures to ensure that all of its expenses are classified in the appropriate cost centers. We recommend that the Department of Medical Assistance make the following adjustment to reclassify costs to the appropriate cost centers. 6 Nursing Facility Services Program (DMA Policies and Procedures, Appendix D) COST CENTER Routine Services Dietary Supplements Supplies Special Services Lab Fees Dietary Dietary Supplements Operation and Maintenance ofPlant Supplies Administrative and General Lab Fees Supplies Total Adjustment to Allowable Costs $ (1,547) (370) $ $ 100 465 $ (1,917) (100) 1,547 (95) 565 0 Finding No.3 Costs Not Related to Patient Care Allowable costs claimed included payments which were not considered to be for patient care operations. Federal regulations provide that costs which are not appropriate or necessary and proper in developing and maintaining the operation of patient care facilities and activities are not allowable in computing allowable costs. We recommend that the provider implement policies and procedures to ensure that expenses claimed in the cost report do not include items not related to patient care. We recommend that the Department of Medical Assistance make the following adjustment to remove the non-patient care expenses from allowable costs. (HCFA Pub. 15-1 Section 2102.3; DMA Policies and Procedures Section 902) ITEMS Interest and Penalties Prescription Drugs $ (218) (1,032) $ (1,250) 1997 Audit Report: Windward Nursing Center, Inc. 7 COST CENTER Routine Services Administrative and General Total Adjustment to Allowable Costs $ (1,032) (218) $.===(1=,2=:50=) Finding No.4 Recalculation ofAncillary Services Cost Adjustment The provider received revenues from the sale of ancillary services to patients; therefore, allowable costs for special services are limited to the maximum allowable cost calculated on Schedule B-IA ofthe cost report. Documentation examined during the audit showed that certain corrections were necessary to amounts reported on Schedule B-IA as total cost per books, total charges, Medicaid charges, total patient days, and Medicaid patient days. These findings required the recalculation of Schedule B-IA. A copy of this recalculation has been furnished to the provider. We recommend that the provider implement policies and procedures to ensure that all information used to calculate the ancillary services cost adjustment is correct. We recommend that the Department of Medical Assistance make the following adjustment to increase allowable costs for the net effect of the recalculation. (General Instructions to the Cost Report) Ancillary Services Pharmacy Medical Supplies Adjustment Per Cost Recalculated Report Adjustment Audit Finding $ (1,510) $ (914) $ 596 (982) ----'-_(882.).... 100 $ (2,492) $ (1,796) $======6==:96= COST CENTER Special Services $======6==:96= 8 Nursing Facility Services Program Finding No.5 Allocationsfrom Home Office The provider was a component of a chain organization for the year ended June 30, 1997. As a result of our audit ofthe home office cost report filed in connection with the Medicaid Nursing Home Facilities Program, we recommended that the Department ofMedical Assistance make adjustments to the allowable costs claimed by the home office. We recommend that the provider and its home office implement policies and procedures to ensure that only allowable costs are allocated from the home office to the provider. We recommend that the Department of Medical Assistance make the following adjustment to correct allowable costs to reflect the allocation of the adjustments made to the home office cost report. (HCFA Pub. 15-1 Section 2150) COST CENTER Administrative and General Pooled Costs Administrative Expenses Allocation Statistics $ (52,789) 1,192 Total Adjustment to Allowable Costs $=====(5=1=::.5=97=) Finding No.6 Patient Day Statistics Census records examined during the audit showed that the nursing home had 17,043 patient days of service rather than the 16,924 shown on the cost report. Federal regulations provide that cost infonnation as developed by the provider must be current, accurate, and in sufficient detail to support payments made for services rendered to beneficiaries. We recommend that the provider implement policies and procedures to accumulate accurate patient day statistics. We recommend that the Department of Medical Assistance make the adjustment of 119 days to correct the statistical infonnation. (HCFA Pub. 15-1 Section 2304) 1997 Audit Report: Windward Nursing Center, Inc. 9 Finding No.7 Accounts Receivable Credit Balances Documentation examined during the audit showed that the provider had numerous credit balances in its individual accounts receivable. Credit balances in the facility's' accounts receivable result from overpayments for services provided to its patients. The $5,956.75 shown in the following table represents overpayments from the Department of Medical Assistance that had not been resolved as of April 20, 1998. We recommend that the provider review its credit accounts receivable and refund overpayments to the appropriate party. We further recommend that the provider implement policies and procedures to ensure that overpayments on patients' accounts are promptly refunded to the payor. We also recommend that the Department of Medical Assistance review this matter and recover any overpayments identified. Patient Name Cullinan, Josephine Graham, Odelle Harris, Lottie Jordan, Bernice Kimbrell, Gladys Wiggenhom, William Total Balance $ 1,041.33 1,928.84 2,582.05 132.08 148.91 123.54 $ 5,956.75 10 Nursing Facility Services Program SUMMARY OF AUDIT FINDINGS AFFECTING ALLOWABLE COSTS AND PATIENT DAY STATISTICS FINDING NUMBER ALLOWABLE COSTS Routine Services 1 Lack of Sufficient Documentation 2 Incorrect Expense Classifications 3 Costs Not Related To Patient Care Special Services 1 Lack of Sufficient Documentation 2 Incorrect Expense Classifications 4 Recalculation ofAncillary Services Cost Adjustment Dietary 1 Lack of Sufficient Documentation 2 Incorrect Expense Classifications Operation and Maintenance ofPlant 1 Lack of Sufficient Documentation 2 Incorrect Expense Classifications Administrative and General 1 Lack of Sufficient Documentation 2 Incorrect Expense Classifications 3 Costs Not Related To Patient Care $ (19,006) (1,917) (1,032) $ $ (2,083) (100) 696 $ (1,432) 1,547 $ (1,454) (95) $ (8,287) 565 (218) (21,955) , (1,487) 115 (1,549) 1997 Audit Report: Windward Nursing Center, Inc. 11 FINDING NUMBER ALLOWABLE COSTS 5 Allocations From Home Office (51,597) (59,537) Property and Related Expenses 1 Lack of Sufficient Documentation (3,463) Total Audit Findings Affecting Allowable Costs $=====(=8=7,=8=7=6=) PATIENT DAY STATISTICS 6 Patient Day Statistics 119 12 Nursing Facility Services Program SCHEDULE OF ALLOWABLE COSTS AND PATIENT DAY STATISTICS COST REPORT TOTALS FIELD AUDIT FINDINGS AUDITED TOTALS ALLOWABLE COSTS Routine Services $ 546,348 $ (21,955) $ 524,393 Special Services 27,306 (1,487) 25,819 Dietary 140,095 115 140,210 Laundry and Housekeeping 79,849 79,849 Operation and Maintenance ofPlant 83,744 (1,549) 82,195 Administrative and General 170,026 (59,537) 110,489 Property and Related Expenses 224,076 (3,463) 220,613 Total Allowable Costs $ 1,271,444 $ (87,876) $ 1,183,568 PATIENT DAY STATISTICS 16,924 119 17,043